empty
21.08.2023 08:32 PM
EUR/USD correction will end sooner or later

Power lies in truth. And the truth is that the stronger the U.S. economy appears, the worse for the dollar in the medium term. Americans will absorb European and Chinese exports and help the world economy get back on its feet. This is excellent news for pro-cyclical currencies, including the euro. EUR/USD will rise. It just needs to give the main currency pair some time.

At first glance, dollar enthusiasts have nothing to worry about. The leading indicator from the Atlanta Fed is projecting a 5.8% growth in U.S. GDP in the third quarter, the best economic growth in the last 20 years if we exclude the post-pandemic recovery period. Most likely, such figures mean that nothing terrible will happen to the U.S. in 2024. However, this should not mislead the 'bears' in the EUR/USD market.

Dynamics of the American economy

This image is no longer relevant

In August, the U.S. dollar proved to be more resilient than one might have assumed, given the weaknesses of its main competitors. The Eurozone continues to teeter on the brink of recession, and rising gas prices bring back the specter of an energy crisis in the Old World. China is probably the biggest disappointment of 2023. Its economy is recovering from COVID-19 much slower than expected. The rate cut by the People's Bank of China leads to a weakening of the yuan and is perceived as panic within chinese officials.

However, this won't last forever. Thanks to the strength of the U.S., both the currency bloc and China will rise again. Moreover, the emerging Goldilocks regime will lead to an increase in American stock indices and improve the global risk appetite.

According to nearly 70% of those surveyed by the National Association for Business Economics, the Federal Reserve will be able to bring inflation down to the 2% target without causing a recession. In March, only 30% thought so. Three out of four respondents see PCE at around 3% by year-end. Inflation slowdown amid rapid economic growth creates a favorable backdrop for American stocks. The resumption of the upward trend in the S&P 500 is key to the rise of EUR/USD.

According to BNY Mellon Investment Management, the ECB will raise the deposit rate to 4% in September and probably bring it to 4.25% amid sticky inflation in the services sector and high wage growth rates, contradicting market consensus. Investors believe that the cycle of monetary policy tightening is over. If the company is right, EUR/USD should rise.

Dynamics of rates, yields, and inflation in the U.S. and the Eurozone

This image is no longer relevant

This image is no longer relevant

Thus, the risks of restoring an upward trend in the primary currency pair are quite significant. The question is how much time it will take. How soon will the euro find its bottom? Fed Chairman Jerome Powell's speech at Jackson Hole may provide a clue.

Technically, the 'bulls' in the EUR/USD are trying to play a doji bar at the lower boundary of the fair value range of 1.086-1.111 and switch to counterattack. Meanwhile, the pair's rise above 1.091 may serve as a basis for short-term long positions.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast

Gold maintains a bearish tone today, though it has slightly recovered from the daily low, climbing back above the $3300 level. Investors continue to hope for a potential de-escalation

Irina Yanina 12:23 2025-04-25 UTC+2

The Market Has Nowhere Left to Run

While Donald Trump and Beijing are still trying to figure out whether trade negotiations between the U.S. and China are happening at all, the S&P 500 continues to climb

Marek Petkovich 11:57 2025-04-25 UTC+2

The U.S. Dollar Rises — Here's Why

The U.S. dollar strengthened against a number of global currencies, as did the U.S. stock market, following reports that the Chinese government is considering suspending its 125% tariffs on certain

Jakub Novak 11:31 2025-04-25 UTC+2

Why Could Gold Prices Drop Significantly? (There's a chance gold will continue to decline while the CFD on the NASDAQ 100 futures contract may rise)

The beginning of actual negotiations could lead to a significant drop in gold prices in the near future. In previous articles, I suggested that the previously surging price of gold

Pati Gani 10:14 2025-04-25 UTC+2

GBP/USD Overview – April 25: The Fed Is Starting to Worry for Real

The GBP/USD currency pair traded higher on Thursday, remaining near its 3-year highs. Despite the British pound's strong rally in recent months, corrections are still rare in the forex market

Paolo Greco 07:57 2025-04-25 UTC+2

EUR/USD Overview – April 25: America Files a Lawsuit Against Trump

The EUR/USD currency pair continued to trade calmly on Thursday, although volatility remained relatively high. This week, the US dollar showed some signs of recovery—something that could already be considered

Paolo Greco 07:57 2025-04-25 UTC+2

What to Pay Attention to on April 25? A Breakdown of Fundamental Events for Beginners

A few macroeconomic events are scheduled for Friday, but this doesn't matter, as the market continues to ignore 90% of all publications. Among the more or less significant reports today

Paolo Greco 07:06 2025-04-25 UTC+2

The Yen Is Looking Stronger and Stronger

The nationwide Consumer Price Index published last week showed accelerated core inflation in March—from 2.6% to 2.9%. Inflationary pressure is increasing, supporting the case for further interest rate hikes

Kuvat Raharjo 01:23 2025-04-25 UTC+2

Canada Awaits Election Results. USD/CAD Outlook

Last week, the Bank of Canada kept its interest rate unchanged at 2.75%, as expected. The accompanying statement was neutral in tone, emphasizing ongoing uncertainty. Confidence is hard to maintain

Kuvat Raharjo 00:59 2025-04-25 UTC+2

The Australian Dollar Could Suffer If the U.S.-China Trade War Escalates

U.S. President Donald Trump once again commented on Federal Reserve Chairman Jerome Powell, openly expressing dissatisfaction with the pace of rate cuts. Another public expression of disapproval of the Fed's

Kuvat Raharjo 00:59 2025-04-25 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.